A guide to procurement law. Anthony Collins Solicitors LLP

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1 PathwAYS THrough the maze Anthony Collins Solicitors LLP

2 Written by Mark Cook and Gayle Monk Edited by Jacki Reason NCVO and NAVCA

3 Introduction NCVO The National Council for Voluntary Organisations believes passionately in the power of the voluntary and community sector to transform the lives of people and communities for the better. NCVO has over 7,400 members. With over 280,000 staff and over 13 million volunteers working for our members, we represent and support almost half the voluntary sector workforce. Our goal is to support members by creating an environment in which voluntary organisations can flourish and develop. The Public Service Delivery Network is a free user-led resource for anyone interested in issues around third sector commissioning and service delivery. It aims to build knowledge and relationships across sectors to transform public services. Established in 2006, the network has over 1,500 members across England, including voluntary sector service providers, public sector commissioners, support agencies and policy makers. NAVCA NAVCA (the National Association for Voluntary and Community Action) is the national voice of local third sector infrastructure in England. We aim to ensure communities are well served by the local third sector by supporting our members and their work with over 160,000 local groups and organisations. NAVCA believes that local voluntary and community action is vital for healthy and inclusive communities. We provide our members with networking opportunities, specialist advice, support, policy information and training. NAVCA is a vital bridge between local groups and national government. Our specialist teams take a lead on the issues that matter most to local third sector infrastructure organisations. We influence national and local government policy to promote local voluntary and community action. For more details about the full range of ways that NAVCA can help you please go to or call us on

4 Introduction Acknowledgements Members of the stakeholder group provided invaluable support and comments throughout the development of this publication. Helen Black North Yorkshire Forum for Voluntary Organisations Nick Buchanan YOU (formerly Southern Focus Trust) Miia Chambers London Borough of Camden Vanessa Chambers Office of Government Commerce Jo Clapham Voluntary Norfolk Penelope Fell Crossroads Caring for Carers Martin Kinsella P3 Charity John Marshall Office of the Third Sector Andy Pallas The Adolescent and Children s Trust Oliver Reichardt Compact Voice and Compact Advocacy Neil Walbran Greater Manchester Centre for Voluntary Organisation (GMCVO) Nick Weatherall Nottingham Council for Voluntary Service (NCVS) Daphne Ingham Richmond Fellowship 2

5 Introduction Forewords This guide is invaluable to anybody working for a local charity, voluntary organisation, community group or social enterprise who is interested or involved in the commissioning and procurement of public services. It will help you understand procurement processes and give you the information you need to challenge the myths and mistruths about procurement. If you are a public sector commissioner, you should also keep a copy of this guide by your side. It can help you improve your engagement with third sector organisations and shows you the options, rather than constraints, procurement processes can present. Commissioning and procurement are a means to an end and that end is good, effective services and stronger communities. This needs the involvement of local third sector organisations in designing and delivering public services but bad commissioning and procurement practices can block their involvement. By presenting the facts about commissioning and procurement in a clear and easy to understand way, this guide gives local voluntary organisations and public sector commissioners the knowledge to work together to create more intelligent commissioning processes. By improving the processes, we will improve our ability to get the effective services and stronger communities which local people need. The IDeA is a strong advocate of partnership working and is a valuable tool that will support strong local partnership working and improve commissioning of public services for the benefit of local communities. Good commissioning and procurement of public services needs third sector groups to be involved in service design and delivery. This guide will help third sector groups understand the context within which local authorities operate, including the complex world of procurement legislation and guidance. It will also help third sector organisations increase their knowledge of the legal context for procurement and enable them to play a more equal part in local commissioning and procurement strategy and practices. Commissioners will benefit from using the guide as it will help them understand the issues that third sector organisations face when they engage in commissioning and procurement. It will also help commissioners develop ways to use local authority powers more creatively to improve public services. This will no doubt prove to be an essential guide for anyone involved in commissioning. Helen Hughes National Adviser Third Sector and Communities Improvement and Development Agency Kevin Curley Chief Executive, NAVCA Stuart Etherington Chief Executive, NCVo 3

6 Introduction Contents NAVCA and NCVO 1 Acknowledgements 2 Forewords 3 About the guide 6 Chapter 1 Introduction and key issues 8 Summary 8 Understanding commissioning 9 Commissioning and procurement 10 Chapter 2 The EU procurement rules and when they apply 11 Summary 11 The legal framework for procurement 12 The EU Treaty principles 12 The EU procurement rules 13 When do the EU procurement rules not apply? 14 The wider legal framework for public bodies 15 How to tell if the EU procurement rules are being followed 15 Chapter 3 The procurement process 16 Summary 16 Deciding on a procurement procedure 17 Advertising the contract 19 Prequalification 20 Inviting tenders 22 Evaluating tenders 24 Awarding the contract 25 Chapter 4 Challenging public body decisions 26 Summary 26 Challenging all contracts 27 Challenging EU procurement law 28 4

7 Introduction Chapter 5 Entering into contracts with the public sector 30 Summary 30 TSOs as sole contractors to the public sector 31 TSOs in other contractual relationships 31 TSOs as commissioners and procurers 32 Chapter 6 Contracts and grants 33 Summary 33 Powers to give grants 34 Potential for challenge to the allocation of grant funding 34 Annual funding 34 The State aid rules 35 Chapter 7 Top tips on procurement and commissioning for third sector organisations and commissioners 36 Summary 36 Good practice for TSOs 37 Good practice for commissioners 37 Chapter 8 Useful information 39 Links and reference points 40 Glossary 42 Appendix 1 Part A services 45 Appendix 2 Part B services 45 Endnotes 46 5

8 Introduction About the guide Background Third sector organisations (TSOs) 1 delivering public services is not a new idea. Charities, voluntary organisations, community groups and social enterprises have successfully delivered public services for many years. However recent years have seen a shift from grants to contracts, which has affected funding relationships between public commissioning bodies and TSOs. This has brought procurement processes to the forefront of the debate about the sector s role and opportunities in the public service delivery market. The third sector needs greater clarity about the rules and obligations public bodies must comply with when procuring services. Some TSOs (especially smaller ones) also feel that the way some procurement processes are structured puts them at a disadvantage and makes it difficult for them to win contracts for the delivery of services that they have been effectively providing for years. Many TSOs are also disadvantaged by a lack of knowledge about procurement processes and the technical nature of the European Union procurement rules. This guide was born out of a need to address these issues and level the playing field. It was commissioned by NAVCA and NCVO to be a resource for people working in the third sector who are engaged in or considering public service delivery. The guide will also be valuable for public sector commissioners, as it includes legal explanations and examples of how to make procurement processes more accessible to third sector providers. Purpose and focus The guide provides information and guidance for TSOs wishing to engage with the public sector and understand the legal framework of procurement processes. It addresses the main legal issues that can arise where TSOs provide services to the public sector, or deliver public services. Opportunities for the public sector to do more and more effective business with the third sector are also covered, where appropriate. The guide also addresses issues that have an impact on commissioning and procurement: how to distinguish a grant from a contract (chapter 6), whether the State aid rules might apply (chapter 6), and good (legal) practice for commissioners wishing to involve TSOs in their processes (chapter 7). It concentrates on the procurement of services at a local or frontline level, as this is the way that most TSOs contract with public bodies. It includes those services not covered by the full extent of the EU procurement rules as well as discussing what action is necessary where the full EU procurement rules apply. What we mean by commissioning and procurement Public bodies achieve their objectives through a variety of routes, either by carrying out activities directly or by dealing with outside parties. In broad terms this process can be described as commissioning. The term covers the entire cycle of assessing the needs of people in a local area, designing services and then securing them. Procurement covers the specific activities of buying services, from the initial advertising through to the final contract arrangements. It refers to the procedures that public bodies must follow when they purchase services. The formal EU procurement process is just one of the routes open to public bodies when they are deciding what services to commission. The guide explains the EU procurement framework, clarifying what can be done when the EU procurement rules do, and do not, apply in full (see chapter 2 for a detailed explanation) and sets procurement rules in the context of the commissioning process. 6

9 Introduction Using the guide The guide is structured to enable readers to use those sections they feel will be most relevant. It is divided into eight chapters, which cover: an introduction to public sector commissioning the application of the EU procurement rules in the wider commissioning context to different situations a breakdown of the procurement process, both where the EU procurement rules apply in full, and where they apply only partially how to challenge a procurement process entering into contracts with the public sector related issues, including how to tell a grant from a contract, when the State aid rules will apply, and different contractual relationships guidance and good practice for TSOs and commissioners useful links and a glossary of terms used throughout the guide and elsewhere. Disclaimer This guide has been prepared by Anthony Collins Solicitors LLP with mutualadvantage on behalf of NAVCA and NCVO. Given the guide s potential circulation and the fact that any advice contained in it is not limited to any specific case, no responsibility can be accepted by NAVCA, NCVO, Anthony Collins Solicitors LLP, or mutualadvantage to any individual, organisation or public body for action taken or refrained from solely by reference to the contents of this document. Public bodies and TSOs should seek their own legal advice on the application of these general principles to their specific circumstances where they consider it necessary. Key points, good practice tips and practical examples are included throughout. The following diagram illustrates the stages of a typical procurement process under the full EU procurement rules. It is used throughout the guide to show what stage in the process is being discussed, with the relevant stage highlighted. Deciding on a procurement procedure Advertising the contract Prequalification Choosing what to commission Inviting tenders End of the contract Awarding the contract Evaluating tenders 7

10 1 Introduction and Key Issues Summary In this chapter we address key issues relating to the context in which the EU procurement rules sit and their application to TSOs and give a brief introduction to public sector commissioning and public procurement. 8

11 Chapter 1 Introduction and Key Issues Understanding commissioning Choosing what to commission Public bodies achieve their goals in a number of ways, both through other bodies and by carrying out activities themselves. This process, described as commissioning, covers the cycle of: Deciding on a procurement procedure Advertising the contract Prequalification assessing the needs of local people or service users designing services securing those services monitoring and reviewing them. Choosing what to commission Inviting tenders There are a number of ways of commissioning services including: the commissioner delivering the activity itself, by employing people and providing the necessary resources giving a grant or subsidy to an organisation to carry out the activity giving an organisation the right to provide the service (a concession or licence) providing capital funding to the organisation, which is then able to carry out the activity on a self-financing basis setting up a joint venture giving financial support to service users to meet fees charged by the service provider organisation or so that they can purchase their own service providing in-kind support (such as seconding staff or providing services, equipment or assets) to the organisation delivering the activity undergoing a procurement, which covers everything from advertising through to the final contract arrangements. Understanding commissioning is important both for public bodies and the TSOs that work with them because: TSOs need to understand the constraints of the powers and policy framework within which commissioners must work TSOs can take steps to influence what services a commissioner sources, and how, by developing good relationships early in the process. End of the contract Awarding the contract Evaluating tenders Every commissioning process should start with the public body deciding what it wants to commission, before considering how. A good starting point is to clarify the public body s high level objectives, ie what has it been set up to do and what legal powers does it have to help it to achieve those objectives? This decision should then be translated into the desired outcomes. It can be extremely valuable to involve relevant TSOs (as well as other possible providers and key stakeholders) in deciding what to commission. Their direct link with service users and communities will often give a useful insight into users needs and how they can best be met. Encouraging TSO involvement in the process will also help to clarify what potential providers have to offer. By considering its options at an early stage, the commissioning body can level the playing field without discriminating against (or in favour of) any particular group. Outputs or outcomes? It is up to the commissioner to decide what services to commission, and whether to procure them (rather than choosing another commissioning route). The commissioner also chooses the specifications and ways of measuring performance. Many commissioners still focus on the outputs of their commissioning, for example, the number of hours spent providing home care under a home care contract. However, focusing on the desired outcomes, for example the effect of the home care service on the beneficiary, such as increased independence and health benefits, can lead to innovative ways of satisfying the commissioner s needs. It is now generally agreed that commissioning that focuses on the impact of the service and seeks input from providers on the activities needed to achieve such impact is likely to produce innovative and more effective services. 9

12 Chapter 1 Introduction and Key Issues Outcome-based commissioning gives providers the opportunity to suggest solutions to the commissioners needs that they may otherwise not have considered. In particular, TSOs can help local authorities and other linked public bodies to consider the goals of their local area agreements. An outcomes based approach can also increase the opportunities to consider the social, economic and environmental aspects of a contract. Commissioners can integrate the principles of sustainable development in the procurement process by taking into account the social, economic and environmental impact of the activities they purchase, at the start of the procurement. This can be consistent with achieving value for money and meeting EU procurement rules. In order for requirements to be compatible with EU law they must not breach any of the EU Treaty requirements and must be relevant to the subjectmatter of the contract 2. Commissioning and procurement Deciding on a procurement procedure Choosing what to commission End of the contract Advertising the contract Awarding the contract Prequalification Inviting tenders Evaluating tenders The EU procurement rules only apply once a contracting authority has decided to procure services. A commissioner can therefore consult with the potential marketplace for the services it needs before entering into a formal procurement, whether or not the EU procurement rules will apply. Example A local council regularly holds meet the buyer events targeted at building the capacity of small and medium sized enterprises (SMEs), 3 including local TSOs. It holds a two-way dialogue that enables it to decide which services will have the greatest impact on the social and economic wellbeing of the residents it serves. Good practice tips TSOs should get involved with the public bodies they would like to be working with as soon as possible there can be a lot of room for discussion with commissioners before they decide what they want to do. Good commissioning involves deciding what is being commissioned before deciding how it is going to be commissioned. Commissioners can and should engage with all potential providers, including TSOs, when shaping exactly what can be provided and ensuring the provision of the best possible service, taking into account their desired outcomes. TSOs and commissioners should be encouraged to engage with each other to learn what TSOs can offer in shaping service requirements. TSOs should demonstrate that they are interested in commissioners policies and strategies and in helping them to meet desired outcomes. Procurement of contracts for services must follow EU procurement rules (see chapter 2) and general EU Treaty principles. It is therefore important for both the commissioner and the TSO to be clear when a formal procurement process, as distinct from the wider commissioning process, has begun. This will help to avoid acting unlawfully and discriminating against or in favour of potential providers. If a commissioning process is not clear and well defined (for example, if the public body has begun more informal commissioning which resulted in a contract being tendered without entering into a formal procurement), it can make it difficult to be fair and transparent. 10

13 2 The EU procurement rules and when they apply Summary In this chapter we discuss the legal framework behind the EU procurement rules and introduce the general principles of EU law as well as the legislation that sets out the EU procurement rules. We discuss: the legal framework behind all contracts that a public body enters into when the full EU procurement rules do and don t apply, and when only part of the EU procurement rules apply what Part A and Part B services are, and why it matters who must follow the EU procurement rules when a public body should follow the EU procurement rules what financial thresholds apply to contracts that must follow the EU procurement rules. As this guide focuses mainly on contracts of interest to TSOs, which will not necessarily be procured under the full EU procurement rules, the rules that apply to all contracts are considered first, followed by discussion of the rules that apply to contracts covered by the full EU procurement rules. 11

14 Chapter 2 The EU procurement rules and when they apply Deciding on a procurement procedure Choosing what to commission Advertising the contract Prequalification Inviting tenders The EU Treaty principles These fundamental principles will apply to all contracts that a public body enters into, regardless of whether the full EU procurement rules apply. The EU Treaty principles include the following: End of the contract Awarding the contract Evaluating tenders The legal framework for procurement The legal framework for public procurement is governed by three fundamental sets of rules and regulations: The principles of the EU Treaty: 4 The EU Treaty sets out the fundamental principles that govern the EU. These principles will apply to all contracts. The EU procurement rules: 5 the rules for EU procurement processes and procedures are set out in the EU s Consolidated Directive and implemented in England, Wales and Northern Ireland by the Public Contracts Regulations the EU procurement rules set out the processes and procedures that the public sector must follow when procuring (rather than providing) works, services and supplies. either the full EU procurement rules or a limited subset will apply, depending on the circumstances. The wider legal framework for public bodies: There is a broad framework of law that all public bodies must follow, including laws that govern contracts and the regulatory framework that defines public bodies duties and powers. These public bodies therefore establish their own internal procedures. Free movement and non-discrimination: a duty not to discriminate between individuals or businesses because of the EU Member State from which they come, and not to inhibit the free movement of workers, goods and businesses within the EU. This includes accepting products and services from businesses in other Member States if they meet the contracting authority s legitimate requirements for the contract. Fairness: a duty to ensure that commissioning and procurement processes are fair, and do not unintentionally exclude potential suppliers. transparency: a duty to ensure that commissioning, procurement and contracting processes are transparent and open. This means that any bidder for a contract should be able to see and understand the process that the contracting authority is following. For example, when a contracting authority invites tenders from interested bidders, it must make clear what it is evaluating, and how it will evaluate and score bidders responses. Proportionality: a duty not to include contract requirements and terms that are disproportionate to the size or value of the contract. For example, a contracting authority should not require technical capability, professional status or economic strength that is far beyond that needed to deliver a contract. The public body must accept technical specifications and qualifications if they are equivalent to the national specifications and qualifications the public body has specified. These principles underpin procurement law and much other European law, and contracting authorities should always consider them throughout their procurements. 12

15 Chapter 2 The EU procurement rules and when they apply The EU procurement rules Who must follow the EU procurement rules? Public bodies covered by the EU procurement rules are known as contracting authorities, and this term is used throughout this guide. They include central and local government and many other bodies funded by the public purse (e.g. an Academy Trust opening a school funded by the Department for Children, Schools and Families) or managed by another public body (e.g. an Arm s Length Management Organisation or ALMO set up by a local council to manage its housing stock). When do the EU procurement rules apply? Depending on the contract, either the full extent or a limited subset of the EU procurement rules will apply. Contracts that are below specified financial thresholds, or contracts for services which fall into the Part B category (see below), will not be subject to the full EU procurement rules. However, it is still essential to consider the EU Treaty principles, and some of the EU procurement rules will still apply. Contracting authorities often follow the full EU procurement rules although they do not need to. However, when public bodies are not obliged to follow EU procurement rules, they should consider using alternative procurement routes, as long as they ensure that the process remains fair and transparent. This can reduce the complexity and cost of participating in the process for a range of potential providers, including TSOs, and introduce elements of flexibility that could achieve wider policy objectives for the authority. TSOs should be prepared to query a contracting authority s procurement method at pre-procurement stage, either directly or through their local infrastructure organisation (LIO see chapter 8). What are Part A and Part B services, and why does it matter? The EU procurement rules divide all services into two categories: Part A and Part B. Contracts for Part A services, where they are above the financial threshold (see below), will be subject to the full EU procurement rules. Examples of Part A services relevant to TSOs include: maintenance and repair of vehicles and equipment computer and related services research and development services where the benefits are received exclusively by the contracting authority management consultancy services publishing and printing services sewerage and refuse disposal. 7 Contracts for Part B services are not subject to the full EU procurement rules. 8 TSOs often provide services that fall into Part B, which include: supporting and auxiliary transport services legal services personnel placement and supply education and vocational education health and social services recreational, cultural and sporting services other services (ie services that do not fit within the categories specified elsewhere, especially in Part A). 9 Example A housing association that is a contracting authority wants to fund a debt advice service for its tenants. This falls under the category of legal services. As this is a Part B service, as long as its process is fair and transparent, the housing association is able to employ a TSO to provide the services without prior advertisement of the opportunity under the full EU procurement rules. The housing association must still follow its own internal rules for contracts, which might include getting a number of quotes, and should consider what advertising is appropriate to the contract. The housing association receives quotes and proposals from three potential providers, and opts for the TSO as the best choice. What are the financial thresholds? The full EU procurement rules only apply if the total value of a services contract is over the relevant threshold. At the time of writing the threshold for Part A services is just over 90,000 for contracts awarded by central government bodies and just under 140,000 for most other public sector bodies. 10 (For most purposes this threshold does not apply to Part B services, which need not follow the full EU procurement rules, whatever their value.) How is a contract valued? The value of a contract is usually calculated by estimating the total amount that will be paid over the duration of the contract or for four years if the contract is for more than four years or is open-ended. 13

16 Chapter 2 The EU procurement rules and when they apply Are contracts valued separately or together with other contracts? Contracts need to be combined ( aggregated ) with other contracts where they are: part of a single requirement for those services (ie a requirement for services at a particular time or in a particular location) part of a series of contracts forming a requirement over a period for those services. Example A contracting authority wishes to enter into a number of small contracts for services to help clear up after incidents of fly-tipping. It wants each service provider to concentrate on specified geographical areas or neighbourhoods within the authority, but is happy to enter into contracts with one or many providers. This would be considered a single requirement for waste disposal services. The aggregation rules need to be considered for contracts for Part A services below the threshold. If the combined value of aggregated contracts is over the threshold, each contract must be procured under the EU procurement rules. However, they do not need to be procured together, which means that the contracting authority can still enter into a series of smaller contracts, even though it must follow the full EU procurement rules for each contract. Small contracts that form part of a larger project ( small lots ) A contracting authority is not obliged to follow the full EU procurement rules for individual contracts where: the total value of all the contracts is less than 20 per cent of a total requirement for services which are being tendered under the EU procurement rules at the same time the estimated value of each of those contracts is less than 54, This is a modification in the EU procurement rules intended to allow contracting authorities to encourage SMEs by giving them greater access to these contracts. The small lots rule only needs to be considered for Part A services. Example A local authority wishes to advertise its services across the whole area it serves. The area includes communities that the local authority knows are difficult to reach and engage with, including community groups where English is a second language, and deprived areas. The rules on small lots could be used to commission a small marketing company with expertise in community engagement to provide marketing and advertising targeted at a particular audience. The authority would not have to follow the full EU procurement rules because the value of the smaller contract is less than 20 per cent of the total contract value. The remaining 80 per cent (or more) of the overall need for advertising and marketing would be procured under the full EU procurement rules. When the small lots rule is used, the contract(s) for the remaining 80 per cent of the value of the services required would still need to be awarded under the EU procurement rules, and the EU Treaty principles apply to contracts using this exemption in the same way as they do to any other contract. It is important to remember, however, that this only applies to Part A services, not to Part B if the services being procured are in Part B, there is no need to rely on this rule. When do the EU procurement rules not apply? Some types of contract are specifically excluded from the EU procurement rules, including: contracts purely for the sale of land employment contracts contracts for research and development services, unless the research is solely for the public body s own benefit and paid for wholly by the public body itself. There are also special rules for contracts procured by utilities (e.g. public or private bodies that operate in the water or energy fields), which are outside the remit of this guidance

17 Chapter 2 The EU procurement rules and when they apply Services concessions Concessions, where a public body gives an organisation permission (ie a licence or a right) to run a facility and keep the income, are excluded from the full EU procurement rules. An example would be a shop run by volunteers in a hospital where the organisation running the shop retains the income from customers but is not funded in any other way. Special cases disability and sheltered workshops A special rule, which could be used more frequently than currently, allows contracting authorities to reserve contracts to be delivered by supported businesses (referred to as sheltered workshops by the EU) where a proportion of the employees has a disability. 13 Disability here is defined as applying to someone with a physical or mental impairment which has a substantial and long-term adverse impact on their ability to carry out normal day-to-day activities. 14 People do not need to be registered as disabled to satisfy this test. This special rule only applies to the eligibility of bidders. 15 It does not change the need for the contracting authority to follow the rest of the EU procurement rules. The wider legal framework for public bodies There is a broad framework of law that all public bodies must follow, which includes laws that govern contracts and the regulatory framework that defines public bodies duties and powers. As a result of this framework public bodies establish their own internal procedures, some of which govern their processes for contract tendering, depending on their value. A public body will have to follow its internal processes when entering into a contract, regardless of whether it has to follow the EU procurement rules. However, public bodies generally have the power to waive their internal procedures as long as this is based on appropriate grounds, such as value for money considerations. This should be supported by appropriate decision making, with a clear audit trail. How to tell if the EU procurement rules are being followed Where the full EU procurement rules apply, they must be followed. The contracting authority may choose to apply them in any case and, if so, must comply with the rules from start to finish. From the point of view of a TSO interested in bidding, if a contracting authority has submitted a contract notice (see chapter 3) to the Official Journal of the European Union (OJEU), this is an indication that it is following an EU procurement procedure and must comply with the full EU procurement rules. This means that the contracting authority can be challenged if it does not follow the rules correctly, even if the contract involved is for Part B services. Key points Public bodies are governed by the EU procurement rules and the EU Treaty principles when they go through a procurement. It is not always necessary for a public sector commissioning body to follow the full EU procurement rules. Public bodies should be aware of the circumstances where the full EU rules do not apply and understand the flexibility that is available to them. Procuring contracts through routes other than the full EU procurement rules may give greater opportunities to integrate wider policy objectives into procurements, although they will still be subject to the EU Treaty principles. The EU Treaty principles will always apply, whether or not the full EU procurement rules apply and all public procurement must be carried out in a fair, transparent and non-discriminatory way. Public bodies also need to comply with their own internal policies and procedures when awarding contracts. Being familiar with these policies will enable third sector providers to understand the constraints and opportunities commissioners face and be better informed about, and even contribute to, commissioning and procurement choices at a strategic level. 15

18 3 The procurement process Summary In this chapter we describe the different procurement procedures and discuss what requirements must be fulfilled when the full EU procurement rules do and don t apply. The chapter covers the procurement process phase by phase: advertisement prequalification inviting tenders tender evaluation contract award. For each phase, the requirements applying to all contracts are outlined first, followed by details of requirements under the full EU procurement rules. 16

19 Chapter 3 The procurement process The diagram below shows a typical procurement process modelled on the full EU procurement rules. Contracts for Part B services must follow the rules set out in the sections headed all contracts because they usually do not need to follow the full EU procurement rules. There are a few exceptions, which are explained in this chapter. Deciding on a procurement procedure Deciding on a procurement procedure Advertising the contract Prequalification The good practice tips given in each section are also relevant whether or not the procedures follow the full sequence prescribed by the full EU procurement rules. Choosing what to commission Inviting tenders Deciding on a procurement procedure Page 17 Choosing what to commission Page 9 Advertising the contract Page 19 Prequalification Page 20 Inviting tenders Page 22 End of the contract Awarding the contract Evaluating tenders If public bodies are procuring services under the full EU procurement rules, they must decide which procedure to use. All contracts As discussed in chapter 2, contracting authorities have internal processes that they must follow for all contracts. End of the contract Awarding the contract Page 25 Evaluating tenders Page 24 For contracts where the full EU procurement rules do not apply, the contracting authority may opt for a process that looks very similar to one under the full EU procurement rules. Alternatively, it may simply require quotes to be obtained from a specified number of bidders (for example for very low value contracts). EU procurement rules Under the full EU procurement rules four different standard procedures can be followed: Open procedure: The contract is advertised. Any potential bidder can express an interest, ask for the contract documents and bid. The contracting authority then evaluates all the bids it receives. Restricted procedure: The contract is advertised, and a prequalification stage is used to eliminate bidders. The contracting authority then evaluates the bids that prequalify. Once bids have been received in the open and restricted procedures, the contracting authority s dealings with bidders are limited to clarifying and supplementing bids. Negotiated procedure: Similar to the previous two, but with the significant difference that the contracting authority can carry out post-bid negotiations with selected bidders. 17

20 Chapter 3 The procurement process there are only limited situations in which the negotiated procedure can be used. Competitive dialogue: A procedure for complex procurements which, again, is available only in limited circumstances. It involves one or more stages of comparing the technical solutions proposed by bidders to arrive at the best and most economically advantageous solution to meet the contracting authority s requirements. Most contracts awarded by contracting authorities use the restricted procedure, under which: a notice is inserted in the OJEU advertising the contract bidders fill in a prequalification questionnaire (PQQ) which the contracting authority uses to ensure that they meet its minimum requirements for technical ability and financial security the contracting authority selects which bidders will be invited to tender for the contract from amongst those that prequalify, and issues an invitation to tender tenders are returned, clarified and evaluated the contract is awarded, unsuccessful bidders debriefed and the contract signed. Many of the documents required (called the contract documents in the EU procurement rules), the notices that must be published in the OJEU, and the rules concerning technical specifications, the rejection of bidders and shortlisting (if relevant) are the same whichever procedure is used. Before advertising Before advertising the contract the contracting authority should consider other issues, including whether to issue a prior information notice (PIN), how to package the contract and whether they want to establish a framework. Prior information notice If a contracting authority has decided it is going to procure services, but has not determined the specifics of what it intends to procure, it can issue a PIN in the OJEU to alert potential suppliers to the forthcoming procedure. This will ensure that the procurement process is transparent and nondiscriminatory if the contracting authority wants to consult about what it is procuring, because the OJEU s publication across Europe gives everyone an equal chance to participate. PINs are optional, but they shorten the minimum timescales under the open and restricted procedures. Contract packaging and lots Contracting authorities have considerable flexibility over how they package contracts, as long as they do not artificially break up larger contracts to avoid the EU procurement rules. There is a growing trend to package contracts into larger and larger units, with the intention of achieving economies of scale and saving on transaction costs. However, it is possible for a contracting authority to procure the contract as a series of lots. These are separate contracts to deliver a part of what is being procured within, for example, separate areas. Bidders can bid for one lot, a number of lots or the whole procurement. Bids for each lot can then be evaluated separately. The public body should have a system for comparing the benefits of any economies of scale offered by organisations bidding for more than one lot. Procuring the contract by separate lots gives smaller organisations the opportunity to bid on their own, ie without having to form a consortium with other bidders. Frameworks Contracting authorities can also choose to establish framework arrangements (see chapter 5). These set out the terms and price for any subsequent contracts ( call-offs ) awarded, but do not commit the contracting authority to make any purchases. There are specific rules about frameworks, also known as preferred providers lists, in the EU procurement rules

21 Chapter 3 The procurement process Advertising the contract EU procurement rules Deciding on a procurement procedure Choosing what to commission End of the contract Advertising the contract Awarding the contract Prequalification Inviting tenders Evaluating tenders Contract notice When contracts are subject to the full rules, contracting authorities must advertise them in the OJEU. Such an advertisement, called a contract notice, is required for all procurements. 18 Contract notices can also be viewed online. 19 The EU procurement rules set out clear timescales for the minimum periods between advertisement and the various stages in the process (prequalification, tender submission etc). These vary depending on the type of procedure used. 20 It is also possible for contracting authorities to advertise contracts outside the OJEU, subject to two requirements: Most procurements involve a decision about whether and where to advertise the contracting opportunity. All contracts Whether or not the full EU procurement rules apply, the EU Treaty principles of openness and transparency apply to all contracts. This means that contracting authorities should make sure that all interested parties know about opportunities. Though there is no explicit obligation to advertise for contracts that are not subject to EU procurement rules, advertising remains the clearest way to show openness and transparency. Case law has extended the obligation to be transparent and objective into a need for contracting authorities to make a judgement about whether the contract is likely to be of interest to potential suppliers based in other parts of the EU and, if so, to advertise accordingly. The advertisement must contain sufficient information to enable a contractor to decide whether to bid. 17 Contracting authorities can advertise on their own website or on a portal website. Many contracting authorities websites include a section dedicated to contracting opportunities. There are also national and regional portal websites listing opportunities, such as supply2.gov.uk. Contracting authorities can choose to publish a formal notice in the OJEU voluntarily, even where the full EU procurement rules do not apply. However, if they do so they are bound by the full rules. where the full EU procurement rules apply, no advert can be placed elsewhere before it has been sent to the OJEU to avoid potential discrimination against bidders unaware of external advertising, adverts must not contain more information than is included in the OJEU notice. Indeed, advertising outside of the OJEU may be very effective in reaching a wider audience of providers, including TSOs. Contract notices will generally include the following information: the contracting authority s contact details and description (what type of body it is and what sort of services it provides or role it fulfils) whether the contracting authority is purchasing on behalf of others (ie as part of a buying club) a description of the contract; whether it is a framework; the estimated total value; the common procurement vocabulary codes; 21 whether it is to be divided into lots; its length legal, economic, financial or technical details including the main financing and payment arrangements; any deposits or guarantees needed; conditions relating to the personal situation of bidders (eg if they are expected to be enrolled on a professional or trade register); minimum standards for economic and financial capacity and technical capacity; whether the contract is being reserved to sheltered workshops or employment programmes (chapter 2) what procedure is to be used open, restricted, negotiated or competitive dialogue; whether there is a limit on the number of bidders 19

22 Chapter 3 The procurement process award criteria whether this is on price or the most economically advantageous tender basis; the weighting given to each criterion time limits for receipt of tenders or requests to participate additional information eg where social and/or environmental requirements are to be used details of appeals and mediation procedures. The contract notice can state that bids are welcome from a range of potential providers, including TSOs, but cannot stipulate that bidders must be based in a particular location. Key points Prequalification Deciding on a procurement procedure Choosing what to commission End of the contract Advertising the contract Awarding the contract Prequalification Inviting tenders Evaluating tenders Information on contract opportunities is available to all prospective providers. Contracts for services covered by the full EU procurement rules must be advertised through the OJEU. Contracts for services not covered by the full EU procurement rules need not always be advertised. However, advertisement is the easiest way of demonstrating openness and transparency. Contracts for Part B services need not be advertised, unless the contract could be of interest to bidders in other Member States. If a contracting authority chooses to publish a formal notice in the OJEU voluntarily, it must follow the full EU procurement rules. Good practice tips Advertising outside of the OJEU can be an effective way of reaching a wider group of potential providers. Contracting authorities can advertise contract opportunities through local third sector channels without disadvantaging other potential bidders, as long as this is one of several avenues used. It is acceptable to contact organisations to check that they have seen an OJEU notice (as part of a strategy to stimulate a wide range of bids, without favouring particular bidders). However, those conversations must not lead to information being given that could favour any potential bidder. Prequalification is used when contracting authorities anticipate a large number of interested bidders and/or wish to ensure only suitably qualified organisations submit bids. It provides a filtering process, and so limits the number of bids and makes the process more manageable. All contracts Even though prequalification is not a required stage in all procedures under the full EU procurement rules, contracting authorities may still choose to use a prequalification process in their tendering. EU procurement rules The prequalification process has multiple purposes: ensuring that bidders invited to tender are eligible ensuring that bidders invited to tender meet the public body s minimum requirements for technical/professional ability and economic/financial standing deciding which interested parties that meet the above requirements will be invited to bid. Under the EU procurement rules the contracting authority must either specify the prequalification and selection information required when it publishes the contract notice or refer to a PQQ which bidders can request. 22 The contracting authority may wish to limit the number of bidders it invites to tender further. If so, it must state how many bidders it will be selecting and select those that score highest in the PQQ. 20

23 Chapter 3 The procurement process The timing of the PQQ depends on the procedure used: open procedure if a PQQ is used, it is sent to bidders with the contract documents (ineligible bidders and those that do not meet the contracting authority s requirements can be rejected at the first stage of the bid evaluation) restricted, negotiated and competitive dialogue procedures a PQQ is sent to all bidders who request it having seen the contract notice. Whether a bidder is invited to tender/negotiate/participate in dialogue depends on the information provided in response to the PQQ. Selection of bidders The EU procurement rules specify the type of criteria that can be used to exclude or select contractors for the next stage of the procurement and the information that bidders can be asked to provide to assess whether they satisfy those criteria. The Regulations set out criteria for the mandatory and discretionary exclusion of bidders. Contracting authorities can also set criteria for the selection of bidders based on their economic and financial standing and technical or professional abilities. Economic and financial standing Contracting authorities can set specific thresholds for the prequalification of bidders in relation to: the provision of a specified number of years of accounts 23 meeting appropriate balance sheet requirements an indication of financial strength. Minimum thresholds for prequalification should reflect requirements that are reasonable for the contract, and should not be higher than necessary. This will avoid TSOs being excluded from tendering for the contract. 24 If there is a valid reason why a TSO cannot provide the financial information requested in the PQQ, the contracting authority can choose to accept other information that it considers appropriate. 25 Example A local council tenders the operation of a day care centre at the end of a contract with a local TSO. It is the TSO s only contract. In its PQQ the council asks bidders for references from three clients. This is an example of a prequalification requirement that is arguably unreasonable ie the local council may not be able to justify it. The local council also requires that bidders demonstrate an annual turnover above 10m. As the contract is only worth 500,000, this could be seen as unfair. Technical or professional ability The information requested in the PQQ should satisfy the contracting authority that the provider is able to deliver the contract: contracting authorities have wide discretion over the information they can consider regarding the bidder s technical or professional ability. Questions must relate to the bidder s experience, capability, capacity and management structures available to deliver everything being procured under the contract. The contracting authority s discretion means that failure to provide non-financial information may not be fatal if the TSO can demonstrate in another way that it has the ability to deliver the contract. Key points The purpose of the prequalification phase is to ensure that prospective bidders meet the contracting authority s minimum requirements. Contracting authorities have wide discretion over the information they can consider. Good practice tips The shortlisting of bidders should be based on a predetermined scoring method which includes the contracting authority s minimum standards and the weighting given to different criteria. Contracting authorities should set thresholds and define prequalification criteria, taking account of the contract s complexity and value. Setting disproportionately high thresholds for financial standing can disadvantage smaller organisations. 21